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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2010 LC CASE SUMMARIES [2007] MLJU 0625, Court of Appeal (Putrajaya) (2007) [Malaysia]
Topics: Expiry; Independence; Guarantee.
Type of Lawsuit: Beneficiary sued Guarantor for wrongful dishonor.
Parties: Principal/Contractor - Haza Enterprise Beneficiary/Respondent - Lembaga Penyatuan & Pemulihan Tanah Persekutuan Guarantor/Appellant - MBF Insurans Sdn Bhd
Underlying Transaction: Unknown.
Undertaking: "Security Guarantee" in the amount of MYR22,017. Silent as to governing rules.
Decision: The Court of Appeal (Putrajaya), Hasan bin Lah, JCA, dismissed the appeal from the judgment of the High Court which had reversed the Magistrate's decision in favor of the Guarantor.
Rationale: Notwithstanding the presence of an expiry date, a reference to the occurrence of a claim by a given date means the date prior to which a breach must occur in order to have a valid claim, rather than designating the date by which a demand must be made under the guarantee.
Article
Factual Summary: To assure performance, Principal/Contractor opened a "Security Guarantee" in favor of Beneficiary. The Guarantee as amended stated in relevant part that "[t]his guarantee will expire on 14th June 1991. Claims if any must be received on or before this date."
When Principal/Contractor failed to perform under the underlying contract, a notice of breach was sent to the Principal/Contractor by the Beneficiary before the expiry date of the Guarantee. Beneficiary however did not demand payment from Guarantor under the Guarantee until the expiry date had passed. Guarantor then refused to pay on the ground that the claim was made after the expiry of the Guarantee.
Beneficiary sued Guarantor for wrongful dishonor. The Magistrate entered judgment in favor of the Guarantor. On appeal, the intermediate appellate court reversed, entering judgment in favor of Beneficiary. On appeal, affirmed.
Legal Analysis:
Expiry: Guarantor argued that the intermediate appellate court had mistakenly confused the guarantee with a bilateral contract. Principal/Contractor argued, and the intermediate appellate court found that Guarantor's attempt to limit the "shelf life" of the undertaking violated Section 29 of the Contracts Act 1950. The final appellate court rejected Guarantor's argument. Judge Lah's opinion stated that "the word 'claim' in the endorsement to the said guarantee must mean a demand by [Beneficiary] of [Guarantor] in respect of a breach occurring before [expiry date] and the meaning of the endorsement in the said guarantee must be construed in the way in which a reasonable commercial person would construe it."
Comment:
The decision fails to indicate whether the "security guarantee" is independent. If so, the ruling in this case is wrong. Independent guarantees usually have expiry dates and the meaning of "expire" is that the obligation ceases to be available (and would be so understood by a reasonable business person). If the undertaking is independent, the term "claim" in the amendment must relate to the claim under the guarantee and not the underlying contract.
[JEB/eml]
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